FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended October 29, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-631
ROSE'S STORES, INC.
Incorporated Under the Laws of Delaware
I.R.S. Employer Identification No. 56-0382475
P. H. Rose Building
218 South Garnett Street
Henderson, North Carolina 27536
Telephone No. 919/430-2600
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the close of the period covered by this report.
Class Shares Outstanding
Voting common stock, no par value 8,262,420
Non-voting Class B stock, no par value 10,495,586<PAGE>
<PAGE>
ROSE'S STORES, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
(Amounts in thousands except per share amounts)
The following summary of financial information, which is unaudited,
reflects all adjustments (none of which were other than normal recurring
accruals) which are, in the opinion of management, necessary to a fair
statement of the information presented below for the thirty-nine weeks ended
October 29, 1994 and October 30, 1993.
Notes:
(1) The Company's consolidated financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the
payment of liabilities in the ordinary course of business. The Company
continues to operate as a debtor-in-possession pursuant to the provisions
of Sections 1107 and 1108 of the Bankruptcy Code. The consolidated
financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
On August 1, 1994, the Company and the major constituencies in its Chapter
11 proceeding filed a joint plan of reorganization in the United States
Bankruptcy Court for the Eastern District of North Carolina. The Plan was
co-sponsored by the Company's significant secured creditors and its
unsecured creditors' and equity committees, and was consented to by GE
Capital, Rose's debtor-in-possession lender. On October 5, 1994 the
Company filed its Amended Joint Plan of Reorganization (the "Amended
Plan") and an Amended Disclosure Statement. The Bankruptcy Court approved
the Amended Disclosure Statement and soon thereafter the Amended Plan was
submitted to the Company's creditors and stockholders for acceptance. The
Company anticipates seeking Court approval of the Amended Plan in mid
December, but there can be no assurance as to the timing of approval, the
terms of the Amended Plan upon approval or whether the Amended Plan will
be approved.
The following summary of the Plan is not intended as a solicitation of
acceptances. The Plan provides secured creditors, primarily senior
secured noteholders, with payments reducing their debt from $108,000 at
the time of filing Chapter 11 to less than $30,000. The Plan contemplates
a four year amortizing note on the remaining debt balance at an 11% annual
interest rate. The unsecured creditors will receive 100% of the shares of
common stock of the reorganized company, or such portion of the stock
which will provide total realization of the group's approved claims. The
existing stockholders will receive warrants for the purchase of up to 30%
of the reorganized company's stock on a fully diluted basis. In addition,
existing stockholders will be entitled to purchase rights to receive all
or a portion of the new common stock which would otherwise be distributed
to the unsecured creditors. All currently outstanding shares of stock,
warrants and options will be canceled. In order for the Plan to be
effective, certain conditions must be met, including, but not limited to,
the following: (a) the Company must have made all required adequate
protection payments to the secured lenders, and (b) the Company must have
an operating cash flow of at least $25,000 as of December 31, 1994.
The Company has received a post confirmation exit financing commitment.
The commitment is for a three year revolving credit agreement which would,
subject to the satisfaction of the terms and conditions contained there-
in, allow the Company to borrow up to $80,000.
(2) The operating results presented herein are not necessarily indicative of
the operating results for a full year due to seasonal factors.
(3) Included in the reorganization costs for 1994 is a $43,000 provision for
the costs of closing 59 stores in 1994 and to realign corporate and
administrative costs accordingly.
(4) Certain reclassifications were made to 1993 balances to conform to the
1994 presentation. These reclassifications have no effect on
stockholders' equity.
(5) LIFO expense (credit) is included as an adjustment to reconcile net loss
to net cash used in operating activities in the statements of cash flows
because LIFO expense (credit) is a noncash item included in cost of sales
to adjust inventories stated on a FIFO basis to a LIFO basis.
<PAGE>
<PAGE>
ROSE'S STORES, INC.
DEBTOR-IN-POSSESSION
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Amounts in Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
October 29, October 30, October 29, October 30,
1994 1993 1994 1993
Revenue:
<S> <C> <C> <C> <C>
Gross sales $ 178,531 276,301 $ 528,345 866,178
Leased department sales 6,088 10,192 17,970 31,341
Net sales 172,443 266,109 510,375 834,837
Leased department income 1,248 1,927 3,698 6,051
Total revenue 173,691 268,036 514,073 840,888
Costs and Expenses:
Cost of sales 129,178 206,152 383,409 640,198
Selling, general and administrative 39,313 72,950 118,900 209,516
Depreciation and amortization 2,246 3,291 7,108 9,767
Interest 1,520 3,091 4,925 9,297
Total costs and expenses 172,257 285,484 514,342 868,778
Earnings (Loss) Before
Reorganization Expense 1,434 (17,448) (269) (27,890)
Reorganization Costs (Note 1) (3,936) (40,416) (54,746) (40,416)
Net Loss $ (2,502) (57,864) $ (55,015) (68,306)
Loss Per Share $ (0.13) (3.08) $ (2.93) (3.65)
Weighted Average Shares 18,758 18,758 18,758 18,734
Note 1
Write-off of Bank Facility Costs $ - (4,528) $ - (4,528)
Closed Store lease rejections - 13,026 - 13,026
Closed store provision - (44,500) (43,000) (44,500)
DIP financing fees,
amortization & expenses (844) (798) (1,778) (798)
Estimated professional fees (2,817) (3,276) (9,331) (3,276)
Other reorganization costs and
expenses (275) (340) (637) (340)
TOTAL REORGANIZATION COSTS $ (3,936) (40,416) $ (54,746) (40,416)
</TABLE>
See notes to consolidated financial statements
<PAGE>
<PAGE>
ROSE'S STORES, INC.
DEBTOR-IN-POSSESSION
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
October 29, January 29, October 30,
1994 1994 1993
Assets
Current Assets
<S> <C> <C> <C>
Cash and cash equivalents $ 620 11,955 5,128
Accounts receivable 23,109 15,057 23,494
Inventories 164,841 203,150 271,999
Prepaid merchandise 6,390 10,757 33,949
Other current assets 7,455 7,457 9,521
Total current assets 202,415 248,376 344,091
Property and Equipment, at cost
Less accumulated depreciation and amortization 36,297 50,234 56,026
Deferred Income Tax Benefits 6,447 6,447 5,760
Other Assets 272 3,048 1,681
$ 245,431 308,105 407,558
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities
Reclamation claims $ 266 4,000 20,353
Current maturities of capital lease obligations 1,010 2,374 2,372
Bank drafts outstanding 445 - -
Accounts payable 33,505 35,507 52,442
Federal and state income taxes - - 1,307
DIP financing 34,975 - 27,219
Accrued salaries and wages 6,892 12,295 10,105
Reserve for store closings and remerchandising 5,720 - 31,346
Deferred income tax liability 6,447 6,447 5,760
Other current liabilities 12,725 14,113 22,534
Total current liabilities 101,985 74,736 173,438
Liabilities Subject to Settlement Under
Reorganization Proceedings 173,248 207,456 208,640
Capital Lease Obligations 892 1,907 2,490
Deferred Income 2,229 2,296 2,671
Accumulated Postretirement Benefit Obligation 5,996 5,614 6,323
Stockholders' Equity (Deficit)
Voting common stock
Authorized 30,000 shares; issued 10,800 shares 2,250 2,250 2,250
Non-voting Class B stock
Authorized 30,000 shares; issued 12,659 shares 18,795 18,795 18,795
Paid-in Capital-Stock Warrants 2,700 2,700 2,700
Retained earnings (Accumulated deficit) (44,046) 10,969 8,869
(20,301) 34,714 32,614
Treasury stock, at cost (4,701 shares at 10/29/94,
1/29/94 and 10/30/93) (18,618) (18,618) (18,618)
Total stockholders' equity (deficit) (38,919) 16,096 13,996
$ 245,431 308,105 407,558
</TABLE>
See notes to consolidated financial statements<PAGE>
<PAGE>
ROSE'S STORES, INC.
DEBTOR-IN-POSSESSION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
For the Thirty-Nine Weeks Ended
October 29, October 30,
1994 1993
Cash flows from operating activities:
<S> <C> <C> <C> <C>
Net earnings (loss) $ (55,015) (68,306)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 7,108 9,767
(Gain) loss on disposal of property and equipment (278) 69
LIFO expense (2,079) 282
Provision for closed stores 43,000 31,474
Write-off of old bank fees - 4,528
Cash provided by (used in) assets and liabilities:
(Increase) decrease in accounts receivable (8,052) (10,210)
(Increase) decrease in prepaid merchandise 4,367 (33,949)
(Increase) decrease in inventories 40,388 (40,018)
(Increase) decrease in other current and non-current assets 229 (1,677)
Increase (decrease) in pre and post-petition accounts payable (6,257) 62,190
Increase (decrease) in accrued expenses and other liabilities (6,709) (1,107)
Increase (decrease) in federal and state income taxes payable - 7,865
Increase (decrease) in reserves for closed stores $ 21,130 25,957
Non cash activities in closed store reserve:
Provision for closed stores (43,000) (31,474)
Retirement of net book value of assets 7,018 255
Write-off of leases (114) -
Write-off of inventory 2,549 779
Net cash increase (decrease) in provisions for
closed stores (12,417) (4,483)
Increase (decrease) in deferred income (67) (875)
Increase (decrease) in accumulated postretirement
benefit obligation 382 317
Net cash provided by (used in) operating activities 4,600 (44,133)
Cash flows from investing activities:
Purchases of property and equipment (1,275) (7,856)
Proceeds from disposal of property and equipment 733 8
Net cash provided by (used in) investing activities (542) (7,848)
Cash flows from financing activities:
Proceeds (payments) of debt (49,179) 15,500
Proceeds (payments) of DIP Facility 34,975 27,219
Principal payments on capital lease obligations (1,634) (1,777)
Increase (decrease) in bank drafts outstanding 445 (3,128)
Other - 194
Net cash provided by (used in) financing activities (15,393) 38,008
Net decrease in cash (11,335) (13,973)
Cash and cash equivalents at beginning of period 11,955 19,101
Cash and cash equivalents at end of period $ 620 5,128
</TABLE>
See notes to consolidated financial statements<PAGE>
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollar amounts in thousands)
Chapter 11 Proceedings
The Company continues to operate as a debtor-in-possession pursuant to
the provisions of Sections 1107 and 1108 of the Bankruptcy Code. On
August 1, 1994, the Company and the major constituencies in its Chapter
11 proceeding filed a joint plan of reorganization in the United States
Bankruptcy Court for the Eastern District of North Carolina. The Plan
was co-sponsored by the Company's significant secured creditors and its
unsecured creditors' and equity committees, and was consented to by GE
Capital, Rose's debtor-in-possession lender. On October 5, 1994 the
Company filed its Amended Joint Plan of Reorganization (the "Amended
Plan") and an Amended Disclosure Statement. The Bankruptcy Court
approved the Amended Disclosure Statement and soon thereafter the
Amended Plan was submitted to the Company's creditors and stockholders
for acceptance. The Company anticipates seeking Court approval of the
Amended Plan in mid December, but there can be no assurance as to the
timing of approval, the terms of the Amended Plan upon approval or
whether the Amended Plan will be approved.
The following summary of the Plan is not intended as a solicitation of
acceptances. The Plan provides secured creditors, primarily senior
secured noteholders, with payments reducing their debt from $108,000 at
the time of filing Chapter 11 to less than $30,000. As of the end of
the third quarter, this debt has been reduced to $42,681. The Plan also
contemplates a four year amortizing note on the remaining debt balance
at an 11% annual interest rate. The unsecured creditors will receive
100% of the shares of common stock of the reorganized company, or such
portion of the stock which will provide total realization of the group's
approved claims. The existing stockholders will receive warrants for
the purchase of up to 30% of the reorganized company's stock on a fully
diluted basis. In addition, existing stockholders will be entitled to
purchase rights to receive all or a portion of the new common stock
which would otherwise be distributed to the unsecured creditors. All
currently outstanding shares of stock, warrants and options will be
canceled. In order for the Plan to be effective, certain conditions
must be met, including, but not limited to, the following: (a) the
Company must have made all required adequate protection payments to the
secured lenders, and (b) the Company must have an operating cash flow of
at least $25,000 as of December 31, 1994.
Following acceptance or rejection of the plan by impaired classes and
equity security holders, the Bankruptcy Court after notice and a hearing
would consider whether to confirm the plan. Among other things, to
confirm a plan the Bankruptcy Court is required to find (i) with respect
to each impaired class of creditors and equity security holders, that
each holder of a claim or interest of such class either (a) will,
pursuant to the plan, receive or retain property of a value, as of the
effective date of the plan, that is at least as much as such holder
would have received in a liquidation on such date of the Company, or (b)
has accepted the plan, (ii) with respect to each class of claims or
equity security holders, that such class has accepted the plan or such
class is not impaired under the plan and (iii) confirmation of the plan
is not likely to be followed by the liquidation or need for further
financial reorganization of the Company or any successors unless such
liquidation or reorganization is proposed in the plan.
<PAGE>
<PAGE>
The Company has received a post confirmation exit financing commitment.
The commitment is for a three year revolving credit agreement which
would, subject to the satisfaction of the terms and conditions contained
therein, allow the Company to borrow up to $80,000.
Under the Bankruptcy Code, the rights of stockholders and pre-petition
creditors may be substantially altered by the plan of reorganization,
either voluntarily or by order of the Bankruptcy Court. The Company's
plan of reorganization permits the Company to fund its current
operations and meet its obligations to creditors (as they are
restructured under the plan) out of the projected cash flow generated by
the Company after approval and confirmation of the plan. The Company's
objective is subject to a number of factors, some of which are within
the ability of the Company to control and others of which are not. At
this time it is not possible to predict whether the Company will achieve
its objective or the effect of the plan of reorganization on the rights
of creditors and stockholders of the Company.
On confirmation of a plan of reorganization, the Company expects to
utilize "Fresh Start Accounting" in accordance with the guidelines for
accounting for emergence from bankruptcy. Fresh Start Accounting is
expected to result in a restatement of Company assets and liabilities to
reflect current values.
Revenue
The Company reported sales for the third quarter of 1994 of $178,531, a
decrease of $97,770 or 35.4% from the third quarter of 1993, and year-
to-date sales were $528,345, a decrease of $337,833 or 39.0% from last
year. Sales on a comparable store basis increased 8.6% for the third
quarter and 2.6% year-to-date. Sales for the third quarter last year
were negatively affected by out-of-stocks relating to the Chapter 11
filing in September, 1993.
Costs and Expenses
Year-to-date cost of sales as a percent to net sales was 75.1% for 1994
and 76.7% for 1993. Increases in markdowns as a percent of sales were
more than offset by increases in markon, decreases in the shrink percent
to sales, and increases in the LIFO credit. For the third quarter, cost
of sales as a percent to net sales was 74.9% compared to 77.5% last
year. This decrease was due primarily to a decrease in the shrink rate
and the effect of a LIFO credit versus LIFO expense last year.
Selling, general and administrative expenses (SG&A) as a percent of net
sales for the third quarter were 22.8% in 1994 and 27.4% in 1993. Year-
to-date SG&A expenses as a percentage of sales were 23.3% in 1994 and
25.1% in 1993. The SG&A rates for the year and the quarter were
positively affected by the closing of 102 unprofitable stores. The same
store sales increase also had a positive impact on the SG&A rate for the
quarter.
Included in the reorganization costs are closed store provisions of
$43,000 in 1994 for 59 closings, and $44,500 in 1993 for 43 closings.
Current year operating results exclude the results of these 102 stores.
Also included in reorganization costs for year-to-date 1994 is $11,746
for professional fees, DIP fees and expense amortizations, and other
expenditures related directly to the Chapter 11 filing.
<PAGE>
<PAGE>
Liquidity and Capital Resources
At the end of the third quarter of 1994, the Company had $34,975
outstanding under its DIP facility. The Company invested $491 in cash
for property and equipment in the third quarter of 1994 compared to
$2,991 invested in the third quarter of 1993. Year-to-date cash
investment in property and equipment was $1,275 in 1994 compared to
$7,856 in 1993.
Cash used by operating activities was $28,235 in the third quarter of
1994. Cash provided by operating activities was $4,600 year-to-date.
Cash used in operating activities during 1993 were $16,105 in the third
quarter and $44,133 year-to-date. Rose's management expects the Company
to realize positive cash flow from its 1994 operations. The filing
under Chapter 11 will protect the Company from its pre-petition
creditors while the plan of reorganization is being confirmed. The
adequacy of the Company's capital resources and long-term liquidity
cannot be determined until the plan is confirmed by the Bankruptcy
Court.
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
ITEM 1: Legal Proceedings (Dollar amounts in thousands)
The Company's business ordinarily results in a number of negligence and
tort actions, most of which arise from injuries on store premises,
injuries from a product, or false arrest and detainer arising from
apprehending suspected shoplifters. The Company's liability for
uninsured general damages and punitive damages is not considered
material. No legal proceedings presently pending by or against the
Company are described because the Company believes that the outcome of
such litigation should not have a material adverse effect on the
financial position of the Company.
On September 5, 1993, the Company filed a voluntary Petition for Relief
under Chapter 11, Title 11 of the United States Code (the "Bankruptcy
Code") with the United States Bankruptcy Court for the Eastern District
of North Carolina (the "Bankruptcy Court") Case No. 93-01365-5-ATS (the
"Chapter 11 Case").
The Chapter 11 Case is described in the Form 10-K of the Company for the
year ended January 30, 1994 and subsequent Form 10-Qs and Form 8-Ks.
The following discussion sets forth certain developments in the Chapter
11 Case during the third quarter of 1994 and through the date hereof,
but it is not intended to be an exhaustive summary. For additional
information regarding the effect of the Chapter 11 Case on the Company,
reference should be made to the Bankruptcy Code.
On August 1, 1994 the Company filed with the Court a proposed Joint Plan
of Reorganization (the "Plan") with the consent of the official
unsecured creditors committee, the pre-petition secured senior
noteholders, and the official equity committee. A copy of the Plan is
attached as Exhibit 10.1 to the Form 8-K dated August 1, 1994. Various
ancillary agreements required to effectuate the Plan are expected to be
negotiated with the official unsecured creditors committee, the Pre-
Petition Lenders, the official equity committee and any Plan/exit
funder, and filed at a later date.
On October 5, 1994 the Company filed its Amended Joint Plan of
Reorganization (the "Amended Plan") and an Amended Disclosure Statement.
The Bankruptcy Court approved the Amended Disclosure Statement and soon
thereafter the Amended Plan was submitted to the Company's creditors and
stockholders for acceptance. The Company anticipates seeking Court
approval of the Amended Plan in mid December, but there can be no
assurance as to the timing of approval, the terms of the Amended Plan
upon approval or whether the Amended Plan will be approved.
<PAGE>
<PAGE>
ITEM 6: Exhibits and Reports on Form 8-K
(a) All exhibits included in the Company's 1993 Form 10K are
included herein by reference.
Exhibit 10.1, Proposed Joint Plan of Reorganization dated
August 1, 1994 is incorporated by reference from the Report on
Form 8-K dated August 1, 1994.
Exhibit 10.1, Order of United States Bankruptcy Court Eastern
District of North Carolina Raleigh Division dated October 5,
1994 is incorporated by reference from the Report on Form 8-K
dated August 1, 1994.
Exhibit 10.2, First Amended Disclosure Statement Related to
First Amended Joint Plan of Reorganization dated October 4,
1994 is incorporated by reference from the Report on Form 8-K
dated October 5, 1994.
Exhibit 10.3, Proposed First Amended Joint Plan of
Reorganization dated October 4, 1994 is incorporated by
reference from the Report on Form 8-K dated October 5, 1994.
(b) Report on Form 8-K dated October 5, 1994, reporting under Item
5 that the Court issued an order approving as containing
"adequate information" under Section 1125 of the Bankruptcy
Code a First Amended Disclosure Statement that describes the
proposed First Amended Joint Plan of Reorganization and
approving the solicitation of acceptances and rejections of the
Plan from various classes of creditors and equity holders prior
to the Court holding a confirmation hearing.
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
ROSE'S STORES, INC.
Date December 9, 1994 By /s/ R. Edward Anderson
R. Edward Anderson
President,
Chief Executive Officer
Date December 9, 1994 By /s/ Jeanette R. Peters
Jeanette R. Peters
Senior Vice President,
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ROSE'S
STORES, INC. FORM 10-Q FOR THE QUARTER ENDED OCTOBER 29, 1994 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000085149
<NAME> ROSE'S STORES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> QTR-3
<FISCAL-YEAR-END> JAN-28-1995
<PERIOD-END> OCT-29-1994
<CASH> 620
<SECURITIES> 0
<RECEIVABLES> 23,109
<ALLOWANCES> 0
<INVENTORY> 164,841
<CURRENT-ASSETS> 202,415
<PP&E> 125,166
<DEPRECIATION> (88,869)
<TOTAL-ASSETS> 245,431
<CURRENT-LIABILITIES> 101,985
<BONDS> 0
<COMMON> 21,045
0
0
<OTHER-SE> (59,964)
<TOTAL-LIABILITY-AND-EQUITY> 245,431
<SALES> 510,375
<TOTAL-REVENUES> 514,073
<CGS> 383,409
<TOTAL-COSTS> 383,409
<OTHER-EXPENSES> 126,008
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,925
<INCOME-PRETAX> (55,015)<F1>
<INCOME-TAX> 0
<INCOME-CONTINUING> (55,015)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (55,015)
<EPS-PRIMARY> (2.93)
<EPS-DILUTED> (2.93)
<FN>
<F1>INCLUDES REORGANIZATION EXPENSE OF $54,746.
</FN>
</TABLE>
